Putting bling on the blockchain: The Everledger story
25 Jan 2017
Blockchain technology has infinite possibilities. Since Satoshi Nakamoto published his white paper on bitcoin, a cryptocurrency housed on a decentralized database, the idea of blockchain technology has captured the minds and imagination of entrepreneurs and business leaders around the world.
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Looking at the Gartner Hype Cycle, many would argue that today blockchain technology is at the peak of inflated expectations. Every industry is exploring how blockchain technology can tackle problems in their market and the number of new companies building in the blockchain space continues to grow.
While blockchain is still a very nascent technology, it promotes the promise of a better future. Applied correctly, it is likely to be the most impactful digital transformation in our lifetime, changing the way we record and process data and transactions, and even changing the way we think.
Contrary to current perception, the concept of blockchain isn’t a complicated one. Focused on core offerings of accessibility, immutability, security and speed, blockchain is a distributed ledger that can record and process joint records.
Given its origins, blockchain has gained the most interest in the financial world where the possibility of faster processing in payments could unlock massive gains for both banks and consumers. The implications for the insurance industry, however, have already proved more promising in the potential to rapidly rewire an industry that currently relies on paper-based processes and is constantly threatened by fraudulent and illegal activity.
Diamonds on the Blockchain
One area where promising work in the blockchain space is being developed is provenance-tracking. Understanding the origin and identity of the commodities we create, sell and trade in open marketplaces globally has never been more important to both the producers and end-consumers. There is additionally strong incentive for various stakeholders across global supply chains, from insurance companies to banks, to have clear visibility on an asset’s authenticity and movement.
At Everledger, we’ve focused our attention on provenance tracking in the world of luxury goods, starting with diamonds. An industry that commands USD 72 billion annually, diamonds have captured the attention of people for centuries dating as far back as Cleopatra’s reign. The tagline Diamonds are Forever, coined by DeBeers’ ad agency in the 1930s, accurately pinpointed the world’s fascination and singlehandedly re-fuelled consumer demand for diamonds that would continue throughout the twenty-first century.
Diamonds rely on records of origin, identity and custody to prove authenticity and provenance. In recent years, the industry has been impacted by the proliferation of blood diamonds, synthetic stones peppering the pipeline and an increase in the amount of fraudulent certificates accompanying diamonds. Most recently fraudulently certified diamonds were discovered in a shipment from Sierra Leone to Hong Kong, and earlier this year a trader on Alibaba attempted to sell 10.000 carats worth of synthetic diamonds, accompanied by certification declaring the stones authentic.
Beyond document tampering, issues with fraudulent claims and double financing continue to plague the industry, mostly recently resulting in the retreat of major banks from financing the diamond supply chain.
Blockchain’s decentralised and secure environment for joint record keeping provides the ideal foundation for building a global, digital ledger for high value assets. Over the past year, Everledger has digitally secured over 1,000,000 diamonds on the blockchain, creating a permanent record that can be used by industry as a clear audit trail to the asset that proves authenticity, and in turn, leads to a reduction of fraud, theft and trafficking.
To create a diamond’s unique digital identity Everledger partnered with major certification houses and scanning technology providers around the world to collect industry certification and combine it with 40+ metadata points, with linkages to the laser inscription on the girdle of the stone. This digital incarnation, or thumbprint of a diamond, adds a reputational layer of trust across industry that allows insurance companies, banks and open marketplaces to detect whether transactions, certificates or diamonds are fraudulent. The process provides a first barrier of defense when it comes to diamond trading and ensures transparency at every stage of a diamond’s life journey from mine to marketplace.
The platform not only replaces industry-wide paper based processes that are fragmented and susceptible to tampering, but also ensures the ownership and authenticity of a diamond is securely recorded on a digitised, incorruptible ledger.
For industries like insurance, the implications become endless as to where a ledger can be used to secure assets and process claims. Beyond diamonds, Everledger is building inroads into other luxury markets where provenance matters, starting with the world of fine wine.
Blockchain’s Impact on Insurance
In the insurance industry, provenance is currently locked in paper. Records proving an object’s identity and custody are fragmented, duplicated among industry players, and susceptible to misrepresentation. Beyond the benefits of joint record keeping and verification on the authenticity and provenance of assets, blockchain could have far reaching implications when it comes to claims processing, risk assessment and the distribution of insurance premiums.
To focus on where blockchain can have the most impact, it’s best to focus on these areas:
Fraudulent Claims - Annually fraudulent claims cost the insurance industry over £2 billion in Europe with 65% of fraudulent jewellery claims going undetected in the United Kingdom alone. Blockchain’s distributed and immutable nature provides a more secure way to record the transaction history, ownership records and identification papers associated with an asset being insured. When a fraudster attempts to upload an incorrect set of information, the ledger will be able to identify suspicious activity and stop the attempt as the records cannot be changed without shared consensus among all the stakeholders invited.
Smart Contracts for Processing Claims - Smart contracts are agreed upon terms written into computer protocol. Smart contracts hosted on the blockchain make it easier to execute an agreement as the process is automated and distributed without reliance on a centralised authority or a person’s verification, as this is already built into the code. The potential for the insurance industry is best exemplified through claims payouts, applied to anything from delayed travel times to an automobile accident. Smart contracts can ultimately automate the process previously required to distribute these claims, resulting in numerous back and forth between the customer, insurer and associated organisations.
Insuring Assets - Blockchain allows both offline and online assets to be tracked in a distributed ledger where records on an asset’s ownership, storage and insurance are tied to the object itself, instead of connected to the current owner. This allows for assets to be insured throughout their lifetime, without disruption everytime an item changes ownership. This becomes impactful when we start looking towards a future IoT enabled world where all the devices we use and engage with in daily life are connected on the web, and more likely, on the blockchain.
For the insurance industry, blockchain gives access to a single version of the truth. A linear, permanent record connected to an asset that replace’s an object’s paper identity with a digital one.
We are at a critical moment with blockchain technology. Industry has woken up to all the possibilities, but careful planning is required to move forward with all the proof of concepts and pilots that have been introduced in 2016.
As with any digital transformation, the paradigm is not focused on displacement and replacement, but is instead on connectivity and recombination. This responsibility is not only with entrepreneurs building in the blockchain space, but also with leading businesses and industries that are looking to adopt this technology.
With blockchain, we have the ability to bring imagining into existence with careful thought, collaboration and consensus on setting the foundation and guidelines for how the technology can and should be applied, and more importantly, under what protocols. The largest hurdle faced will be in industries where regulation is inflexible and where considerable cooperation will be required to determine the best way forward.
The biggest threat for blockchain is the application of the technology to all matter of problems, across any industry. When you look at the fabric of the technology, you have to think about where it can best be applied; what information or objects require the immutability, security and scalability that blockchain provides. We’ve seen projects pursued where blockchain isn’t required, where other methods actually work better. Entrepreneurs and industry leaders have a big role to play here in identifying where we should be investing in blockchain.
Working at the forefront of a technology like blockchain is exhilarating and comes with its share of responsibility. If we as an industry move on implementing projects where blockchain isn’t required, we fail collectively. But if we build out commercial systems where blockchain has the potential to solve critical path and last mile problems, then there is no limit to what we’ll be able to achieve.